Monday, August 15, 2011

Technical Analysis Put to the Test

Tea leaf reading (i.e. technical analysis) is not a hard science, but it beats the efficient market hypothesis in my opinion. One has to start somewhere when trying to learn how to trade and invest. For example, Gold is in a beautiful, clear and undeniable secular uptrend. Easy to see and hard to dispute unless you are a paperbug.

I would like to show a chart and predict an outcome based solely on technical analysis. Now, I admit, I am cheating a little since I know something about the fundamentals being that my soul is stationed in the area of interest related to this instrument, but nonetheless, the charts speak louder than my understanding of the fundamentals in my opinion.

The chart is a 1 year daily chart of "high yield municipal debt" (i.e. junky local government U.S. debt) thru today's close:

My prediction is not wishy-washy. I believe a major decline will occur in this instrument and I don't think we will make it thru August before it begins.

Let's see if technical analysis works in real time. Of course, if it doesn't, one could certainly argue that it is the practitioner that is at fault rather than the art...